Penalty under Central Excise Rules set aside in appeal due to lack of mens rea

The penalty imposed under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Act for delayed payment of monthly duty was set aside in the appeal. The Member (Judicial) found that there was no suppression of facts, fraud, or collusion by the appellant, as duty liabilities were declared in monthly returns and interest was paid for delayed payments. It was emphasized that mens rea is essential for penalties under Section 11AC, and without it, the penalty cannot be imposed. The appeal was allowed, and the penalty under Section 11AC was deemed unsustainable.

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Issues:
Imposition of penalty under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Act for delayed payment of monthly duty.

Analysis:
The adjudication order imposed a penalty of Rs. 16,40,825 under Rule 25 of the Central Excise Rules, 2002 read with Section 11AC of the Act due to the appellant's default in paying monthly duty. The appellant paid the duty belatedly along with interest for the period October 2007 to January 2008. The adjudicating authority argued that no mens rea is required for imposing penalty under Section 11AC, leading to the penalty being equal to the duty amount. The Commissioner(Appeals) upheld the Order-in-Original, stating that once Section 11AC is invoked, there is no discretion to set aside or reduce the penalty. The appellant challenged this decision, leading to the current appeal.

The appellant's counsel argued that the case involved delayed payment of monthly duty, which was eventually paid with interest. The duty liabilities were declared in the monthly returns, indicating no suppression of facts. The only lapse was the delayed payment, which is covered by Rule 8(3) requiring interest for delayed payments. The counsel cited various judgments to support this argument.

On the other hand, the Revenue representative reiterated the findings of the impugned order. The Member (Judicial) carefully considered both sides' submissions and concluded that there was no suppression of facts, fraud, or collusion by the appellant. As the duty liabilities were declared in monthly returns and interest was paid for delayed payments, there was no mens rea. The Member highlighted that Rule 8(3) addresses delayed payment of duty, requiring interest at most, and without the necessary ingredients of Section 11AC, the penalty cannot be imposed. Referring to the Supreme Court's decision in a previous case, it was clarified that mens rea is essential for invoking Section 11AC. The Member disagreed with the Commissioner's view that mens rea is not required for such penalties. The Member also distinguished the applicability of a previous Supreme Court judgment, stating that it is irrelevant in the current case. Consequently, the penalty imposed under Section 11AC was deemed unsustainable and set aside, leading to the allowance of the appeal.

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